Unfortunately, the actions of some credit repair companies have injured the reputation of the industry as a whole. They promote their services to vulnerable consumers who wish to improve their credit situation, but have little to no understanding of how credit works. Many promises are made to these consumers – promises that cannot be fulfilled.In the past few years, the Federal Trade Commission has pursued multiple credit repair companies for breaking the law.
If you’re in a tight situation and want to improve your credit situation with the help of a credit repair company, there are ways to protect yourself. Consider steering clear of the following four red flags:
- Illegal Fees
Recently, in two new legal settlements,the Consumer Financial Protection Bureau (CFPB) alleged that Prime Credit, IMC Capital, Commercial Credit Consultants and Park View Law charged clients illegal advance fees, misled them about what they could actually offer and failed to adequately disclose. If a credit repair company cites an affiliation with the government or special relationship with the credit bureaus, asks you to waive your rights under the Credit Repair Organizations Act or requests questionable fees, you should definitely seek services elsewhere.
- Upfront Payments
The companies involved in the CFPB settlements sought to evade this requirement by requesting a series of fees: an initial $59.95 consultation fee, a $89.99 monthly fee, and hundreds of dollars for a “set-up” fee. Under federal law, a credit repair company is not permitted to request or require upfront payments. Before they can request payment, they must be able to show they have achieved actual improvements to a client’s credit report or score. Until they can document this, they are not allowed to ask you for a cent.
- Failing to Follow Up
Another issue you need to be wary of is credit repair companies failing to follow up. According to the CFPB, shady companies will send “dispute letters” to national credit bureaus challenging “much of the negative information” in clients’ credit reports, “even if that information was accurate and not obsolete”. The problem: these companies failed to follow up with the credit bureaus. They fail to check and see if the identified challenged items in dispute were addressed, and if the clients’ credit scores were appropriately adjusted.
- Misleading Guarantees
Another red flag to be aware of – and a violation of federal law – is credit repair companies offering you a misleading “money back guarantee”. In some cases, for example, credit repair companies offered worthless money back guarantees. They were useless until the client had paid for at least six months’ worth of services.
If your plans have been halted due to bad credit, don’t despair. There are credit repair companies out there who are genuinely ready to help you improve your credit situation so you can move on with your personal and business plans. Although the credit repair industry is considered to be “high-risk” due to the issues stated above, many credit repair companies turn to providers like First American Merchant for a credit repair merchant account. In turn, these companies are able to offer consumers a safe, straightforward and hassle-free experience.